Fiat in talks to buy assets of GM Europe

Italian company may also spin off its auto business

ROME – Fiat Group SpA confirmed yesterday that it is in talks to buy most of General Motors Corp.'s European operations, taking another step toward creating a global automotive powerhouse.

Fiat also said it is evaluating the possible spinoff of its auto business to form the core of a new company.

Fiat Group Automobiles includes the Fiat, Alfa Romeo and Ferrari brands. In addition, Fiat is in the process of acquiring U.S. automaker Chrysler without putting up any cash.

The new auto company, which according to Fiat would have $105 billion in annual revenue, would put the Italian automaker in markets where it has little or no presence, including North America, traditionally the largest market in the world.

“They're going to be a global powerhouse, I guess. Who would have thought?” asked Erich Merkle, an independent auto industry analyst in Grand Rapids, Mich.

The Chrysler deal, which must still be approved by a U.S. bankruptcy court, would be in exchange for giving Chrysler access to Fiat's small-car and engine technology. Chrysler cars and trucks also would be sold by Fiat through its global distribution network.

The Fiat statement was issued on the eve of a meeting in Berlin between Fiat CEO Sergio Marchionne and the German economy and foreign ministers to discuss Fiat's offer for GM's German unit, Opel. GM Europe also includes the British company Vauxhall and the Swedish carmaker Saab. Saab may not be included in the deal, however. The company is being reorganized under Swedish law and is likely to be separated from the rest of GM's European operations.

GM Europe spokesman Frank Klaas said the company has several possible investors, which he wouldn't identify, but said, “we are in very good negotiations with them.”

GM also makes and sells small Chevrolet-badged cars in Europe that are designed in South Korea by the company's Daewoo unit, and it's unlikely to sell that because that would be GM's only remaining foothold in Europe, Merkle said.

General Motors has been trying to find investors for its noncore and unprofitable assets as part of a restructuring in which it has received $15.4 billion in aid from the U.S. government to avert collapse.

Opel has said it needs $4.3 billion to get through the economic crisis. The German government has said it doesn't foresee giving direct state aid. Chancellor Angela Merkel has suggested the government could help an Opel investor with loan guarantees.

Fiat said that over the next few weeks, Marchionne will be looking “to assess the viability of a merger of the activities of Fiat Group Automobiles (including the interest in Chrysler) and General Motors Europe into a new company.”

“As part of this process, the group would evaluate several corporate structures, including the potential spinoff of Fiat Group Automobiles and the subsequent listing of a new company which combines those activities with the activities of General Motors Europe.”

Fiat is not the only suitor for Opel, however. Last week, Canadian car parts maker Magna International presented German Economy Minister Karl-Theodor zu Guttenberg with what the minister called a “rough concept for a commitment with Opel.” Guttenberg has said the German government would wait to determine its role in any full or partial Opel sale until after the U.S. government had weighed in.

Fiat, meanwhile, has pressed ahead with a takeover of Chrysler. Chrysler is seeking to sell substantially all of its assets to Fiat, but must gain approval from a New York bankruptcy court.

The Fiat Group also includes its agricultural vehicles branch CNH and its Iveco trucking unit.